Modern Slavery in Singapore: How Free Are You Really?

We have an obsession with comparing salaries and incomes.

But having rising salaries doesn’t mean our quality of life is improving if we are getting deeper and deeper into debt.

Having financial debt means some Singaporeans are forced to work in jobs they dislike, with working hours they hate because they are enslaved by debt.

How much is the average Singapore household debt?

According to ValueChampion’s calculations, the average debt of a Singaporean household is about S$57,637 per capita as of 31 Dec 2017, up roughly 5% from its level in 2016.

Three-quarters of this debt comes from home loans (S$43,220), and almost one-fifth from debts such as personal loans, education and alternative loans (lumped under ‘Others’).

How long will it take the average Singaporean to pay off his debt?

As everyone’s salaries, assets and liabilities are different, for the purpose of this article, we will make certain assumptions below.

In 2017, the median monthly household income from work per household member was $2,699.

An OCBC Financial Wellness Index study revealed that the average savings rates for workers in Singapore is 26%.

Assuming the 26% average savings rate (or $701.74 a month) is completely used to pay off the $57,637 debt, it would take more than 82 months or almost 7 years to clear the debt.

However, it is unlikely that the average Singaporean worker would use all their savings to clear his/her debt, which means the number of years we are in debt can be longer than 7 years.

Are workers in Singapore getting into more or less debt?

Here are some debt trends observed in Singapore.

1. More credit cards, more credit card billings

According to ValuePenguin,

“total billings per card in Singapore has risen rapidly starting in 2016, now reaching an all-time high level above S$500 per card. This suggests that people may be using cards to spend more than they could previously afford.”

Since 2016, total credit card billing per card in Singapore has risen to above S$500, which is the highest it has ever been. (ValuePenguin)

2. Every adult generation is saddled with debt.

Based on information from Credit Bureau Singapore’s Consumer Credit Index Q3 2019, the borrowing market remains strong.

All generations (from 21 years old) have debts in all measured categories: mortgage, credit card, personal loan, motor loan and overdrafts.

While the young are spending less on mortgage loans (could be due to higher HDB grants and/or cooling housing measures), they are also accumulating more motor loans. (Credit Bureau Singapore)
Those aged 35-39 have been taking on more personal loans. It is surprising to see the > 54-year-olds with almost $300,000 in personal loans! (Credit Bureau Singapore)

3. Easier options to obtain cash (and get into more debt)

Those aged 35-39 have been taking on more personal loans. It is surprising to see the >54 year olds with almost $300,000 in personal loans!

With the proliferation of financial comparison websites and more financial institutions hopping online to find borrowers, there are many articles and avenues to compare the ‘best’ loan in town.

The lack of a digital banking licence did not stop Grab from offering cash advances to its drivers and riders either, some of whom have pointed out that the incentives have decreased and this cash advance scheme is a way to tie drivers to continue driving for Grab.

Screengrab: Vulcan Post/Facebook

What are the implications of being a modern slave to too much debt?

Being in debt entraps you in a vicious cycle.

You are forced to work because you need the money to pay off your debts, such as drivers and riders being tied to Grab to pay off their cash advances. What happens if you fall sick or cannot work anymore?

Your existing debts will limit how much mortgage loan you can take based on the Total Debt Servicing Ratio (TDSR), a regulation introduced by the Singapore government in 2013.

Your credit score affects whether you can take more loans in future (if you are desperate for cash).

The type of debt and the interest charged also matters.

If you have a credit card debt which charges interest rates around 28%, vs an HDB housing loan which charges 2.6%, which creditor should you pay first if you have limited funds?

If you take a mortgage loan from a bank vs an HDB housing loan, which creditor would be more likely to seize your flat and assets without offering alternative assistance?

Before you consider bankruptcy, be aware there are options such as Debt Consolidation Plans offered by banks and a Debt Management Programme offered by Credit Counselling Singapore.

Singaporeans are too good at spending.

It is time we discovered how to be better at saving and investing to avoid being a modern slave to debt.

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